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By TERRIE MORGAN-BESECKER (STAFF WRITER)
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Published: October 1, 2013

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Lax oversight by Newton Twp. officials resulted in a $767 monthly boost in the police chief's taxpayer-funded pension after he worked thousands of extra hours in shifts at Lackawanna County's central booking center and overtime, a Times-Tribune investigation has found.

Chief Robert Reese, the township's sole police officer, worked as many as 64 hours per week combined at both jobs within the 36-month period that was used to calculate his pension. That significantly increased the average salary used to calculate the payout, bumping the monthly pension to $3,015, compared to the $2,248 he would have received, the newspaper found.

Known as "pension spiking," the practice, through which employees' salaries are artificially inflated in the final years immediately preceding their retirement, has dogged pension plans nationwide, pension experts say. While not illegal in Pennsylvania, spiking has been decried by pension reform advocates as a questionable practice that has contributed to the intense financial stresses on public employee pension plans.

"It's a matter of fairness," said Edward Siedle, a Florida attorney who specializes in money management and pension law. "With spiking and other manipulations, people can retire with a greater income than what they earned. â¦ The cost of it is borne by taxpayers in one way or another."

In Chief Reese's case, township officials could have lessened the impact on his pension by more carefully monitoring his hours within the 36-month look-back period used to calculate the pension, but failed to do so, said supervisor chairman Ron Koldjeski.

The spiked benefits, coupled with a significant stock market loss in 2008, are primarily responsible for financial problems that caused the police pension plan to drop from a nondistressed to moderately distressed state between 2009 and 2011, said the plan's administrator, Ron Bitner of Univest Pension Services,

That resulted in increased taxpayer contributions to the fund - a situation Mr. Koldjeski acknowledges some may find particularly vexing because the bulk of the extra benefits is attributable to the hours Mr. Reese worked at the booking center, which has little to do with the township.

Chief Reese acknowledged he worked excessive hours in the time frame used to calculate his pension, but insisted he did not intentionally spike the payout. The extra hours are attributable to his strong work ethic, he said.

"The last three years you are working count toward your pension and I just happened to be working at the booking center.

"I did not get the job because I knew I'd be retiring," he said. "I did it because I like to work. I've always worked more than one job."

A review of county and township records confirm Chief Reese continued to work more than 1,000 hours a year at the booking center, even after the pension calculation period ended.

'Special pay'

Chief Reese also said he never asked that the booking center money be added to his township pay, and doesn't know why it was handled that way.

"I wanted to be paid directly by the county but they were not doing that at that point. They worked on a voucher system. You turned it in and they paid the township for the hours," he said.

The booking center is under the control of the district attorney's office. First Assistant District Attorney Gene Talerico said most of the officers employed there today are paid directly by the county. In the past, payments for some officers were passed through the municipalities. It was up to each municipality to decide how it wanted the officers paid.

Mr. Koldjeski said he cannot say whether Chief Reese knowingly sought to inflate his salary. Even if he did, he did nothing wrong, as the practice is legal.

"People do it all the time. If you can work more hours and help better your pension, are you going to begrudge them that?" Mr. Koldjeski said. "As long as they are doing the job, I don't begrudge them that."

The onus, Mr. Koldjeski said, is with township supervisors who were on the board at the time - himself, Gary Martenson and John Pardue - for failing to control how the chief was being paid by the booking center.

The booking center is a county-operated facility that processes defendants arrested by departments throughout Lackawanna County. It is open 24 hours a day, seven days a week.

Despite the fact the center is county run, checks for Chief Reese's work were written to Newton Twp., which commingled the money with his township pay, listing it as "county special pay." Because it was included in his township pay, it counted toward his pension calculation, Had he been paid directly, it would not have counted.

Records show Chief Reese worked a total of 2,043 hours at the booking center and 414 hours of overtime in the township from June 1, 2006, to May 31, 2009 - the time frame used to calculate his pension. The pension calculation period ended in 2009, even though the chief continues to work in the township, because he entered a deferred retirement program.

Chief Reese continues to work at the booking center, but is now paid directly by the county.

The additional pay resulted in significant spikes in salary during the look back period. For instance, in 2008, he worked 1,091 hours at the booking center and 108 hours of overtime in the township, records show. That added $20,262 to his base salary of $43,308 (including sick and vacation time), for a total salary or $63,570 - an increase of about 47 percent over his base pay.

All told, the overtime and booking center shifts added $44,154 to his salary during the look-back period. That increased his pension to $3,015 per month, compared to $2,248 he would have received had he not gotten any overtime or special pay, according to the newspaper's analysis. That equates to an increase of $767, or about 34 percent, Of that amount, $545 is attributable to the hours he worked at the booking center, the newspaper found.

Mr. Koldjeski, who began serving on council in 2005, said he does not know why the county money was funneled through the township, but it was clearly a mistake to have done so. Not only did it increase the township's pension costs, the township was also responsible to pay increased federal withholding tax at the time the money was paid, he said.

"If he is working for the county let the county pay him. Why pass it through us?" Mr. Koldjeski said. "We shouldn't have done it to begin with, but what are you going to do?"

'Double whammy'

At the time the payments were made, Mr. Pardue, who is no longer on council, oversaw the Police Department, Mr. Koldjeski said. He said he doesn't know why Mr. Pardue permitted the practice or why he never brought the matter to the attention of other supervisors.

"I was aware (Chief Reese) was working at the booking center, but I was not aware of the way they were paying him," Mr. Koldjeski said.

Mr. Pardue did not return several detailed messages left at his home. Mr. Martenson also did not return a phone call seeking comment.

The salary increases caused problems for the pension plan because they exceeded what the plan's actuary had anticipated, Mr. Bitner said. For instance, the actuary assumed Chief Reese's salary would increase 4.5 percent between 2007 and 2008. It actually increased by 13.8 percent when the overtime and special pay were included.

"There is an assumed rate of increases in wages. This increase was far beyond that value," Mr. Bitner said. "If wages change more than the assumption, the liability can go up dramatically."

That is precisely what happened. Records show liabilities increased $121,264 from 2009 to 2011. The plan's assets, meanwhile, increased just $5,340.

Contributing to the financial woes, the plan also suffered a significant investment loss of $99,914 in 2008.

"It was a double whammy," Mr. Bitner said. "When two negative things happen at the same time, it does not help."

That change in assets and liabilities caused the plan's funding ratio to drop from 90 (nondistressed) in 2009, to 68 (moderately distressed) in 2011.

As a result, the township had to pay in $16,000 from the general fund this year to help shore up the fund, and it is expected that much will be needed next year as well, Mr. Koldjeski said.

While unhappy with the situation, Mr. Koldjeski stressed he has no complaints about Chief Reese's performance. It was a hard lesson, but township officials have learned from the experience, he said.

"You have to watch things closely. It's an easy thing to get away from you," he said.

Contact the writer: tbesecker@timesshamrock.com

Today: Pension program allows workers to collect while not yet retired. A10

Tomorrow: Scranton's plans on road to ruin.

Thursday: No quick fix for ailing pension plans.

Common pension terms

- Funding ratio: A pension plan's financial health is measured by its funding ratio, which is equal to the percentage of its liabilities that are covered by its assets. Plans with a funding ratio of 90 percent or higher are not distressed; those at 70-89 percent are minimally distressed; a ratio of 50-69 is moderately distressed; a ratio of 50 or less is severely distressed.

- Defined benefit plan: A pension plan that pays retirees a guaranteed, set percentage of their final salary. Municipalities must fund the plans, regardless of their investment returns, to ensure they meet current and future obligations.

- Defined contribution plan: A pension plan similar to a 401k plan in the private sector. A municipality contributes a set percentage into the plans, but is not required to guarantee a specific pension payment to retirees. The payout is partly dependent upon investment returns.

- Actuarial study: A study performed by an accounting expert who analyzes various statistics to assess a pension plan's financial condition. The study is also used to determine how much money a municipality must contribute to a pension plan to honor current and future obligations to retirees.

- Minimum Municipal Obligation: Also called MMO, the minimum amount of money a municipality is required to pay into its pension funds each year. A municipality is required to contribute the minimum by Dec. 31 each year.

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